Australian Dollar Holds Firm

The Australian dollar held above $0.705, staying near multi-week highs as the Reserve Bank’s latest remarks reinforced a restrictive policy stance. RBA Assistant Governor Christopher Kent said earlier rate increases were working as intended, with tighter monetary conditions weighing on consumer spending and slowing broader economic activity. He noted that housing credit growth had slowed, with a noticeable decline in new home lending, and said financial conditions overall remained somewhat restrictive. The central bank kept its cash rate at 4.35% this week after raising it by 75 basis points since February. However, Governor Michele Bullock said policymakers remained concerned that inflation may not cool as hoped and were prepared to raise rates again if needed. Markets priced around a 54% chance of a hike to 4.60% by December, likely marking the end of the tightening cycle. Attention now turns to Governor Michele Bullock, who is due to testify before parliament on Friday.

The Australian dollar held above $0.705, staying near an eight-week high after the Reserve Bank of Australia kept its cash rate unchanged at 4.35% for a second consecutive meeting, as widely expected. The unanimous decision came as the central bank said the economy was slowing as expected under tighter financial conditions, while keeping the option of another rate hike if upside inflation risks materialize. Markets had also expected rates to remain unchanged after second-quarter inflation came in below forecasts and the housing market weakened more than policymakers had anticipated. The RBA has already raised rates three times this year, as stubborn inflation and higher energy costs continued to weigh on the outlook. Markets now price around a 40% chance of another hike this year, down from 50% before the decision. Attention now turns to Governor Michele Bullock, who is due to testify before parliament on Friday, while Assistant Governor Chris Kent is scheduled on Thursday.

The Australian dollar held above $0.706, approaching an eight-week high as investors looked ahead to the Reserve Bank of Australia’s monetary policy decision on Tuesday. The central bank is widely expected to keep its cash rate unchanged at 4.35% for a second straight meeting, although policymakers are expected to maintain a hawkish stance as inflation remains elevated. Markets are pricing around a 50% probability of another 25-basis-point rate hike by year-end, while traders will closely watch the RBA’s updated forecasts and Governor Michele Bullock’s comments for clues on the future policy path. Elsewhere, the US dollar weakened against major currencies, after US employment unexpectedly declined in July, reducing expectations for the Federal Reserve to raise interest rates. The Aussie is also poised to climb back toward a thirty-five-year high against the yen as the impact of Tokyo’s currency intervention fades and the RBA’s hawkish stance bolsters the exchange rate.